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March 22, 2012

Citi Mulls Unloading Smith Barney Stake to Morgan

Glenn Schorr of Nomura says Citi is open to upping sale to Morgan Stanley

Glenn Schorr, a Nomura Holdings analyst, wrote in a letter to clients on Thursday that Citigroup CFO John Gerspach and COO John Havens indicated that they would be willing to sell more than the scheduled 14% stake in Morgan Stanley Smith Barney if Morgan Stanley is interested.

Bloomberg reports Morgan Stanley has the option to buy a 14% stake in its joint venture with Citi in May, increasing its ownership to 65%, and can purchase the business outright over the next two years. In 2009, Morgan Stanley bought a controlling stake in the joint venture, which has more than 17,000 advisers and $1.65 trillion in client assets.

The news service notes the firms would have to renegotiate their existing deal and gain the approval of regulators. The Federal Reserve has approved the current plan.

Estimates of the potential deal’s value vary greatly. Howard Chen, an analyst at Credit Suisse Group AG, estimated the value of the brokerage at $15 billion in a January note to clients. David Trone, a JMP Securities analyst, said in a note in February that the unit was worth $24 billion, Bloomberg reported.

The reason for a potential deal might be the fact that Morgan Stanley's global wealth management division had a 10% pretax profit margin in 2011, well below CEO James Gorman's goal of more than 20%. Greg Fleming, who runs the division, has vowed to increase that margin by the first half of next year.